Home prices down 26.7% from year ago

San Diego County and the rest of the nation entered the final quarter of the year with housing prices still plummeting at historic rates, Standard & Poor's reported yesterday.

The firm's closely watched Case-Shiller Home Price Index showed San Diego resale home prices down a record 26.7 percent from a year earlier in October. It was the 19th consecutive month of record year-over-year drops.

S&P's chief economist, David Wyss, said San Diego prices are likely to continue dropping for another year, with resale home prices falling about 50 percent from the peak.

San Diego resale prices hit a high of $574,500 in May 2006, according to the research firm MDA DataQuick, and they have since fallen 42 percent to $335,000.

“Your problem, the 'bubble' areas, were places where prices were going up 15 to 20 percent for four or five years and going up to ridiculous levels relative to income,” Wyss said, “and they are coming down to earth.”

At one point, San Diego prices were 1,400 percent of average household income, more than four times the national ratio of 340 percent.

For most of the rest of the country – outside Arizona, California, Florida and Nevada – prices are currently “flat to down a little bit,” Wyss said.

The Case-Shiller index for 20 metro areas, including San Diego, was down a record 18 percent from October 2007 to October this year. Phoenix fell the most, down 32.7 percent, followed by Las Vegas, 31.7 percent; San Francisco, 31 percent; Miami, 29 percent; and Los Angeles, 27.9 percent. San Diego ranked sixth.

On a month-by-month basis, Detroit, plagued by severe auto-industry job losses, was off the most, down 4.5 percent. San Diego was down 3 percent, the highest monthly decline since February's 3.6 percent drop.

The index is based on a scale set at 100 for January 2000 for all markets. San Diego's index peaked at 250.34 in November 2005 and has since fallen to 159.12, meaning that the median price of homes surveyed is 59 percent higher than it was at the beginning of the decade.

Norm Miller, an economist at the University of San Diego, said his research suggests that the Case-Shiller figures overstate the actual price trends by about 25 percent or $100 per square foot, mainly because low-priced foreclosure sales currently represent more than half of all resales. He used data on the size and locations of homes sold to compare homes that went through foreclosure with those that did not over the past year.

Miller also found that prices in up to 80 percent of all ZIP codes in the county have fallen less than the Case-Shiller figure for the full county.

“There are two values going on – distressed sale and nondistressed sale values,” he said. “In areas without many distressed sales, prices are not nearly as affected.”

Looking to 2009, Wyss and Miller both said a recovery is unlikely anytime soon, perhaps not for another 12 months. Wyss said sales have to accelerate, a trend likely to occur with mortgage interest rates predicted to decline to below 3 percent.

“San Diego isn't in as bad a shape as Miami,” Wyss said, comparing two regions with large numbers of investment and second-home purchasers. “But it is still going to hurt.”

On the other hand, Miller said rising unemployment, perhaps exceeding the 10 percent level in 2009, will dampen demand: “Over the next six months, it probably is a good time to buy housing – probably anytime in next year is a good time to buy housing.”